There are two common beliefs about customer loyalty. The first is that loyal customers are important to a business. The second is that loyalty, in today’s world, is pretty much dead. The first is true. Loyal customers are indeed more profitable, talk about you more, and stay longer. The second belief, however, is not true. Not by a long shot.
We hear the ‘customer loyalty is dead’ refrain quite often from executives lamenting the increasingly transient nature of consumers. Some blame Millennials. Others blame the digital age, or aggressive pricing created by cheap offshore labor and production. We look everywhere, it seems, but the mirror.
The Essence of Real Customer Loyalty
When you think of real loyalty – the loyalty we have to friends, to country, to groups – there are three factors:
- Belonging
Humans are social creatures. We want to feel like we belong to something - Resonance
We are attracted to things and people that reflect our ideals, values and principles - Caring
We like and trust people who care about us and value us.
These are the three things organizations who are serious about customer loyalty should be focused on. But that’s not the approach most companies take.
Bribery and Entrapment Do Not Equal Loyalty
Instead of doing things that create genuine loyalty, most organizations resort to things such as financial incentives for long-term contracts, or points-based schemes that they call “customer loyalty programs.” They are effective, but that effectiveness has waned significantly over the last decade or so. People are becoming fatigued with points programs, and our wallets will only carry so many cards. Consumers are avoiding long-term contracts in droves.
Incentives for contracts and points programs are designed to manipulate behaviours. They are, respectively, bribery and entrapment. (see the video) They have nothing to do with loyalty. They are simple, quid-pro-quo strategies designed to hang on to a customer as long as possible. The problem, of course, is that there is no reason for customers to stick around the moment someone else offers a better deal.
Want To Create Real Customer Loyalty?
Forget the quid-pro-quo. Focus on creating Belonging, Resonance and Caring. Yes, it’s hard to sell to a quarterly-driven CEO, or the board he or she reports to, but there are some great examples out there: Harley-Davidson owners have a palpable sense of belonging. Google’s “Don’t Be Evil” mantra resonated with a generation cynical about big business. Amazon and Rackspace are examples of companies that built empires around relentless caring for their customers.
(Related Post – Is Your Company Really Loyal To Your Customers? Really?)
Excellent post Shaun! Loyalty of customers is a major factor that can ensure a smooth sail future for businesses. The growing influence of customers to get what they want, when they want requires business to draw up plans to make sure that the customers stick around with them and stay loyal in the future.
Jenny Mark
Shaun, all these three are necessary conditions for loyalty, but not sufficient. The Customer Value added is the necessary condition.
Lets assume I have a wonderful experience that makes me wanted, resonates with me, and I find the experience caring.
When it comes to rebuy, these will be part of the value the present supplier has provided and is a plus, but if the competitor creates more value (benefits-cost), we would switch.
Thanks for your post. I completely agree with your perspective. There is another perspective and caution. Mark Twain wrote, “All generalizations are false, including this one.” It is a reminder that human (a.k.a., customer) behavior is complex influenced by many factors, unique contexts, and changing needs based on stages of life.
I appreciate the sentiment behind your premise. Too many marketers view customers as malleable, unthinking consumers easily manipulated by cheap attractions and hollow promises. The soul of service is too often relegated to the sidelines in the boardroom. Belonging, resonance and caring are very important. However, to say “that’s it” implies they account for all the internal influences driving customer loyalty.
My neighbor is a loner and uncomfortable with social gatherings. He would say he has a zero need for “belonging.” He bought a Harley only because it came in a color he liked. And, he rides with no one. Amazon’s intense caring might be suspect when you consider some of the reports of the working conditions of some Amazon employees. My point is to be careful with sweeping conclusions.
What I particularly appreciate about this post is the strong focus on all things emotional and memorable in the customer experience. As you note, most companies are largely practicing things that can be generally defined as “barriers to exit”, methods of ensnaring and sometimes almost enslaving customers. Increasingly, customers have migrated to, and remained with, vendors they can trust and respect and who they feel will look out for their best interests and care for them. And, if the vendor can deliver experiences that are above and beyond basic expectations, and do things that are unexpected, yet make the experience more positive, so much the better.
Hi Shaun: I like your outline of the essence of loyalty, but in order for me to buy into it, I first need to understand more precisely what loyalty is. That seems pretty hard to define. Purchases over time – if so, how long? Share of wallet – what percentage? Purchase volume – how much? Ability to tolerate a vendor’s service glitches and yet continue buying – if so, how much would a ‘loyal’ customer withstand versus one considered ‘disloyal?’ Number of times rebuffing a competitor’s outreach – how many incidents? Resistance to competitive discounting – what is the threshold level? Contribution to overall profits . . . ?
There are many ways to slice this loyalty onion, and even when it’s sliced, it’s not a given that a ‘loyal’ customer is a profitable one – or even one that a vendor must feel compelled to keep.
Real-world case in point: Customer X has steadily purchased from Vendor Y, a manufacturer, for over seven years. The orders are always urgent, short lead time, and low profit margin. The “loyalty” comes from the fact that Customer X’s primary vendor doesn’t like handling such high-service, low-margin orders. So, Customer X has reliably given Vendor Y all its orders for cats-and-dogs (industry vernacular for cruddy orders), while giving its primary vendor all its high-margin business. (Note: This arrangement went on for years, even after Vendor Y finally got wise and started surcharging Customer X’s orders by 10%.) Yet, if loyalty dashboards had been invented at the time, Customer X would have looked pretty loyal.
Ever since I started out in marketing and sales, I’ve always considered customer retention a worthy goal. But for me, sustained customer purchases – how I loosely define loyalty – has always been ephemeral, and no business should ever take it for granted that long-time customers won’t, don’t, or can’t churn. From that perspective, yes, loyalty is dead – but was probably never ‘alive’ in the first place because – to me – loyalty has never been an expression of permanence.
To Michael’s point about ‘barriers to exit’ – I think it’s worth differentiating between benign barriers, and exploitative barriers. Benign barriers could be assigning a permanent account rep or inside sales staff that works on-site, and becomes an integral, indispensable part of the customer’s project team. It’s a barrier, albeit a kindly one. Compared to a vendor that exploits customers by offering deceptively low introductory rates, while providing proprietary hardware and data interfaces that are prohibitively expensive to change once an application has been fully implemented. It’s an age-old strategy that also works very well – for vendors.
Benign . . . exploitative . . . Back to the definition of ‘loyalty’ : customers that don’t switch? . . . . but are they really loyal . . . .? And are ‘loyal’ customers ones that vendors want? I wish the answers were easier to develop.
Michael: Thanks. I like the terminology of ‘Barriers to Exit’ – a new one for me. That’s a terrific definition of the most common practices.
Chip: True about generalizations. ( including that statement!). I’m not sure about the examples you gave, though. Based on your description, I don’t think your uncle would be considered a loyal customer. And Amazon, by recent reports, seems to have created strong customer loyalty without parallel employee loyalty.
Thanks Andrew. You’re right that the definition of Loyalty is a tough one. The confusion comes from blurring what loyalty is, and the outcomes that loyalty achieves.
Both real loyalty and ‘barriers to exit’ (to use Michael’s phrase) will create frequent purchasing behaviour – as might the willingness of a company to accept ‘cat & dog’ orders. And if we just measured outcomes, we might confuse them for loyalty.
That’s why I believe the true measure of loyalty is more attitudinal than transactional, and that Belonging, Resonance and Caring are at the core.
Many people are rabidly loyal to Starbucks, for example, despite the coffee costing significantly more than alternatives, and many studies showing other brands (including McDonalds) as being “better coffee.” A big part of that success is branding and conspicuous consumption that creates resonance. When someone walks down the street with a Starbucks cup in their hand, they believe it says something different about them than the person with the McDonalds cup.
Might people stop being loyal to Starbucks? Possible – particularly if Starbucks doesn’t keep their eye on the ball, and start making decisions that diminish the resonance.
Sears is a great example of that. Fierce loyalty up until the early 90’s when bean-counters saw the industry-leading return policies (and other things) as drains on profitability. They took their eyes off of the ‘we care about our customers’ ball, and the rest is history.